Most Traders Gamble, Do You?
Stockscores.com Perspectives for the week ending May 15, 2017
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| Upcoming Events |
2 Free Webinars
Check out the schedule on the Stockscores.com home page for details and to register.
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In this week's issue:
In This Week's Issue:
- Upcoming Stockscores Free Webinars
- Stockscores' Market Minutes Video - Watch for Sector Moves
- Stockscores Trader Training - Most Traders Gamble, Do You?
- Stock Features of the Week - Stockscores Simple Weekly
Upcoming Stockscores Free Webinars
These are free to attend, please register using the links below:
How to Become a Stock Market Day Trader
Thursday May 18 6pm PT
I will walk you through the steps to becoming a full or part time stock market day trader. See the step by step processes I use to define the stocks I trade each day and the indicators I have created to alert the trades.
Click here to register
How to Manage Your Stock Trades in 10 Minutes a Day (or week)
Tuesday May 23 6pm PT
I will walk you through the processes and analysis for finding stock investments and managing the stocks that you own. See my daily and weekly routines and the tools I use to find strong stocks.
Click here to register
Stockscores Market Minutes - Watch for Sector Moves
Stocks have a correlation to their sector index but that correlation strengthens when the sector starts to move abnormally. That topic, my weekly market analysis and the trade of the week on SBGL in this week's Market Minutes. Click Here to Watch
To get instant updates when I upload a new video, subscribe to the Stockscores YouTube Channel
b>Trader Training - Most Traders Gamble, Do You?
Many people think that trading the stock market is a form of gambling, making the markets of the world not much more than giant electronic casinos. For many who trade the market, gambling is exactly what they are doing. For others, trading is not gambling and this week I want to outline what makes the difference.
First, let's define what gambling is. Simply, it is wagering money on a bet that has a negative expected value. That means that a rational person who understands the odds of the bet should expect to get less back than they put in. Yes, a gambler might get lucky and get far more back than the math would predict but placing these bets many times will lead to losses.
To avoid being a gambler, the trader must make trades that have a positive expected value. Let me explain by looking at a well-known casino game, Blackjack.
The object of Blackjack is to amass cards that add up to 21 without going over with the hope that your total is greater than that of the dealer. The player who has a King of Hearts and a 10 has a score of 20 and beats the dealer if she has a pair of nines, adding up to 18. I am sure you already know how the game works and I expect that most of you know that in Blackjack, like any casino game, the odds favor the house. That means that a casino that deals thousands of hands of Blackjack can expect to win. They won't win every hand, just the majority over a large number of hands.
Therefore, Blackjack is a gamble because the expected value of playing the game is negative. There are, however, ways to take the gamble out of Blackjack, some legal according to the rules of the game and others not.
If the dealer is showing a six and you the player have a six and a five, it is not a gamble to "Double Down" by doubling your bet and only taking one more card. The odds of you winning are in your favor in this scenario because the six that the dealer holds is a bad card and the 11 that you currently have has a good chance of turning in to a 21 if you draw a card that has a value of 10. Doubling down on 11 has a positive expected value as long as the dealer is not showing an Ace.
So, within a gambling game like Blackjack there are scenarios where the odds favor making a bigger bet without breaking the rules. Some Blackjack players have learned how to break the rules of the game and put the odds in their favor, the most common way is to count cards.
A card counter keeps track of the number of face and small number cards that remain in the deck by counting those that have been dealt. When a remaining deck is heavy with high value cards, the odds of the player beating the dealer goes up enough to favor the player, making the game one where the expected value of making a bet is positive. At this point, the game is no longer a gamble because the player should make money, unless they suffer from bad luck. This differs from the gambler who relies on good luck to win.
Let's bring this concept back to trading. Do you know the expected value of the trades you make in the market? To really understand what your odds of making a profit, and the expected size of that profit, requires establishing a set of rules and testing those rules over a large number of trades so you can determine the expected value of your strategy rules.
You may establish that you want to buy any stock that a PE Ratio of less than 70% of the industry average. Sounds like a good idea, but is it? Only testing that rule over many trading examples and market conditions can really tell you if this simple approach to the market is an effective one.
Strategies do not have to be complicated by they do need to be well tested. If you approach the market without a set of trading rules and an understanding of the expected value of your trading approach, you are a gambler. Yes, you will get lucky and could make great profits. However, in the long run, the profits of the gambling trader are just short term loans.
I am doing a webinar on Thursday at 6pm PT that will show how I approach trading and use my trading in May to showcase the expected value concept presented above. It is free and you can register for it by clicking here.
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Ran the Simple Weekly scans on Stockscores, focused on the 3 year weekly charts in search of the right patterns. Below are two stocks that I think have good potential. If you want to know how I pick these stocks each weekend, watch the free webinar on Tuesday May 23rd and I will show you. Click here to registerBack To Top
1. V.CXV
V.CXV is breaking up from a rising bottom on the weekly. The daily chart shows a breakout through resistance at $0.145. Not a very liquid stock and quite volatile, so make sure you are comfortable with the risk. Support at $0.115.
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2. T.TKO
T.TKO (TGB) - this stock trades in Canada and the US and is breaking a pull back on the weekly chart. Most of the gains came late on Monday with strong volume, indicating investors got excited about something very recently. Support at $1.50.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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